Legal news

Taxpayers in the non-commercial profits (NCP) category, that fall within the scope of the controlled declaration, has to subscribe, in practice by 20 May 2020 at the latest, to the declaration n°2035-SD and its annexes. Taxpayers which are not in the NCP category will declared directly the amount of their gross revenues “recettes brutes” on the form n°2042-C Pro.

MAIN INNOVATIONS 

➪ Statement of results of 2019 “Détermination du résultat de 2019”

• Sums received by the interpreter-translators collaborators of the public service of justice are classified as non-commercial profits. Same for the amounts withdrawn from the activity carried out by management and accounting associations.
• Non-commercial companies “sociétés non commerciales” shall declare all their existing foreign bank accounts.
• The maximum deduction allowed for the cost of meals is at 13,95€ in 2019.
• A merging company may claim exemption from the added value “exonération de la plus-value” realised by the acquired company on the sale of a fund to a third party, during the interim period within the claim period “période de réclamation”.
• According to the court of Douai, the gain from the exempt of professional capital-gains “exonération des plus-values professionnelles” depending on the value of the conceded elements, is not subject to compliance with the conditions specific to management leases in the event of termination of the contract the day before the transfer of the fund.
• The legal system of tax deferral “dispositif légal d’étalement de l’impôt” gives to long-term capital gains, in the event of a sale accompanied by a vendor credit of all the fixed assets of the business activity, now concerns a greater number of companies.
• The long-term capital gains regime “régime des plus-values à long terme” is extended, as of January 1, 2019, to more products earned by a natural person inventor or his successors in title. All these products are taxable at the specific rate of 10%.
• As of January 1, 2019, the scope of the deferral of taxation of the capital gain “report d’imposition de la plus-value” arising on the contribution by a natural person inventor of some industrial property rights is extended.
• Voluntary payments on a group or in a individual pension plan “plan d’épargne retraite collectif ou individuel”, both are are deductible within certain limits.
• Two of the thresholds which allow small companies to retain only the fiscal useful life “durée d’usage fiscal” to depreciate their fixed assets are modified as of May 31, 2019.

➪ Measures adopted in 2019 with no effect on the 2019’s result 

• In order to determine the tax regime applicable to income earned in 2020, the threshold for application of the micro-NCP “micro-BNC” scheme is raised to 72600€, (Law 2019-1479 of 28/12/2019 art.2).
• The consequences of the transition from micro-NCB regime to the regime of controlled declaration   “régime de la déclaration contrôlée” with option for commitment compatibility “comptabilité d’engagement”, or vice versa, are specified as from the taxation of income in 2020 (Law 2019-1479  of 28/12/2019 art.55).
• As of January 1, 2020, the threshold of liability for profit-sharing is raised, and the procedures for counting and exceeding the number of employees are assessed according to the social security rules (Law 2019-486 of 22/05/2019 art.11).

In accordance with decree 2019-656 of 06/27/2019

Since January 1st, 2019, a flat-rate tax has been imposed on capital gains realized by private individuals during the occasional sale of digital assets, particularly cryptocurrencies (Law 2018-1317 of 28-12-2018, art 41).

The decree of June 27th, 2019 clarifies the declarative obligations incumbent, on the one hand, on taxpayers transferring (selling) digital assets and, on the other hand, on individuals, associations and companies without a commercial form domiciled or established in France that are holders of digital asset accounts opened, detained, used or closed abroad.

Regarding this second point, the decree states in particular that a person, association or company is deemed to detain a digital asset account abroad when he/she/it is the holder, co-holder, economic beneficiary or beneficial owner of such account.

A person is considered to be using a digital asset account if she has made at least one credit or debit transaction for a calendar or tax year, either as an account holder or by proxy, for her personal purposes or for a resident person.

The decree came into force on June 29th, 2019, except for the provisions relating to accounts opened, held, used or closed abroad that apply to declarations filed from January 1st, 2020.

Declarative obligations regarding Bitcoin and other digital assets are specified.docx

In accordance with the provisions of Article 115 of the General Tax Code of France, (hereinafter CGI), profits made in France by foreign companies through a permanent establishment are presumed to be distributed to partners who do not have a tax domicile or registered office in France, and therefore are subject to the withholding tax referred to Article 119 bis, 2 CGI.

This deduction is provisionally liquidated on the total amount of French results available. It can therefore, at the request of a foreign company, be recalculated on the basis of the actually distributed amounts.

Clarification of the calculation of the withholding tax of foreign companies.docx

For the second quarter of 2019 the average effective rate applied by credit institutions for variable rate loans to companies with an initial maturity of more than two years, amounts to 1.36%.

Interest paid to shareholders or associates of the partnership because of the sums they make available to the company in addition to their share in it is deducted from taxable profit within the average effective interest rate charged by credit institutions for variable rate loans to companies whose initial maturity exceeds two year.

For the second quarter of 2019, the average effective rate is 1.36% (OJ 27-6).

Companies that will close a financial year in the third quarter of 2019 (from June 30 to September 29) will be able to find out the maximum deduction rate that they can use this fiscal year.

For companies with 2-month financial year the maximum deductible interest rate for reporting periods closed since June 30, 2019 is as follows:

Note: these rates are calculated according to the formula given by BOI-BIC-CHG-50-30 No. 70 (BIC-XI-5835 s.).

However, the companies that terminate their financial year during the quarter can, if they find it interesting, take into account the rate related to the quarter in which the last months of the financial year are included (BOI aforesaid  No. 40: BIC- XI-5845 s.).

It should be noted that in practice, companies closing the financial year between July 1 and September 29 will be able to find out the average effective rate for the current quarter before signing their income statement (since the rate for the third quarter of 2019 will be published in the second half of September). Thus, if this rate is higher than in the previous quarter, it will be more profitable for companies to use it to determine their marginal interest rate.

In this regard, companies that have closed their fiscal year between May 31 and June 29, 2019 have an interest in using this alternative calculation formula when the rate taken into consideration for the second quarter of 2019 (1.36%) is higher than that previous quarter (1.34%). By applying this alternative formula, the maximum rate of deductible interest amounts to 1.40% for these years (instead of 1.39%). On the other hand, there is no advantage to using the alternative formula for the fiscal years closed between April 30 and May 30, 2019, as both methods resulting in the same rate (1.41%).

Current accounts of associates – maximum deductible interest rate.docx

In order to determine whether capital gains from disposals of fixed assets should be included in turnover, it is necessary to determine whether such disposals fit into the business model of the company.

Corporate taxpayers with a turnover of more than 250 million euros were taxed with an exceptional contribution equal to a fraction of this tax calculated on the basis of their taxable results for financial years closed between December 31, 2011 and December 30, 2016 (in accordance with Article 235 ter ZAA of the French General Tax Code, hereinafter CGI).

In deciding on the appreciation of the threshold for annual turnover in the case of a German company whose business in France consists in the administration and management of buildings on behalf of investment funds but that also realized capital gains on the sale of this buildings, the Council of State decided that:

– on the one hand, the threshold is appreciated by reference to revenue from all transactions carried out by the taxpayer in the course of his normal professional activity in France and abroad, regardless of the tax regime of the result of operations corresponding to this turnover;

– on the other hand, in order to determine whether the capital gains from the sale of real estate made by the company should be taken into account in the turnover, it is necessary to determine whether these disposals are part of the economic model of the company.

The case before the Council of State concerned a German company whose object was to provide regular rental income to investment funds. This company held several properties located in France, listed as assets on its balance sheet and leased. In addition to generating income from the rental of this property, the company realized a capital gain during its sale (selling ten buildings in 2011, three in 2012, two in 2013, five in 2014 and four in 2015). In particular, in 2011, sales almost ten times exceeded rental income.

Due to the recurring nature of the sales as well as their importance and quantity, the Versailles Administrative Court of Appeal, seized of the dispute, considered that the capital gain thus obtained should be included in the annual turnover of the company for its further imposition of the exceptional contribution (CAA Versailles, 1-6-2017).

Although the court considered that in order to be subject to an exclusive fee, only turnover related to profits taxed in France in accordance with Article 209 of the CGI should be taken into account, the Council of State, on the contrary, judged that should be taken into account the revenue from all operations carried out by the taxpayer in the course of his usual professional activities in France and abroad, regardless of the tax regime of the result of operations corresponding to this turnover.

It should be noted that in this way the Council of State confirmed the position already adopted in other cases (in particular, in the case of CE 9-12-2016). It follows in particular that the territorial rules provided for in respect of income tax should not be taken into account for the assessment of the threshold for turnover above which an exceptional contribution was due. It should also be taken into account that in respect of the exclusive contributions of large companies applicable to fiscal years closed between December 31, 2017 and December 30, 2018, drawn up in terms identical to the contributions in question, the administration, on the contrary, indicated that it would be advisable to maintain the turnover associated with corporate taxable profit in France in accordance with article 209 of the CGI. But it has not extended this solution either to the social contribution (CGI Art. 235 ZC) or to the exceptional contribution referred to in the present case (Art. 235 ZAA).

The inclusion of capital gains in the amount of turnover depends on the business model of the company.docx

The Court of Justice of the European Union (CJEU) considers that the losses of a non-resident subsidiary that have become definitive may be transferred within the tax integration of the integral parent company. For this reason, it is up to the latter to demonstrate that it is impossible for it to value these losses by ensuring, in particular by means of an assignment, that they are fiscally taken into account for future periods.

In France, the Montreux Administrative Court recently recognized that losses resulting from the liquidation of a non-resident subsidiary are imputed on the integrated tax result of a French parent company (TA Montreuil 17-1-2019).

By two decisions of June 18, 2019, the CJEU has recently clarified the possibility of transferring the definitive losses incurred by a non-resident subsidiary or sub-subsidiary to the parent company of the integrated group, thus reviewing the “Marks & Spencer” case law (CJUE 19-6-2019 aff. 607/17, Skatteverket c/ Memira Holding AB ; CJUE 19-6-2019 aff. 608/17, Skatteverket c/ Holmen AB).

The legal basis for the transfer of losses from one Member State to another

By a decision of the Grand Chamber in the case Marks & Spencer (CJUE 13-12-2005 aff. 466/03), the Court of Justice of the European Union held that the restriction on the freedom of establishment  by limitation of the right of a company to deduct the losses of a foreign subsidiary, while this deductibility is granted to a resident subsidiary, is justified by the need to maintain a balanced allocation of taxing powers between Member States and to prevent the risk of duplication of losses as well as tax evasion..

However, the Court clarified that this restriction would be disproportionate if the non-resident subsidiary has exhausted all possibilities of taking into account its own losses and if there is no possibility that such losses may be taken into account either by itself or by a third party through an assignment of the subsidiary to it.

After hesitations regarding the particular nature of the tax regime discussed in the case law of Marks & Spencer and the case law “X Holding BV” (CJUE 25-2-2010), the CJUE has raised the doubts of the doctrine and the scope of the case law created by the tax judge by means of two decisions concerning permanent establishments whose principles seem, mutatis mutandis, applicable to the subsidiaries (CJUE 12-6-2018 ; CJUE 4-7-2018).

In the “Bevola” case, the Court  in fact extends the Marks & Spenser solution to permanent non-resident loss-making establishment. But in the  “NN A / S” decision, which pursues the logic of the Marks & Spencer judgment, the Court applies this notion to a group of companies, including a non-resident subsidiary, considering this situation comparable to that of a purely national group.

In fact,  restrictions on the fundamental principle of freedom of establishment, the cornerstone of a single European market, do not in any way prevent the comparison of situations between different systems leading to the taking into account of losses between companies belonging to the same group (be it tax integration or loss exchange).

Regarding the judgment X Holding BV,  it concerned the conditions of access to the tax integration system, but did not address the issue of the definitive exclusion of non-resident companies with regard to the tax advantages enjoyed by the companies members of the integrated tax group. In this case, it was pointed out that the decision of the Dutch parent company not to include a non-resident subsidiary in its own tax integration, since the profit earned by this subsidiary was not subject to Dutch tax law was consistent compatible with European principles.

Tax integration and losses of European subsidiaries _ the _Mark and Spencer_ jurisprudence revisited.docx